What Happens When You Break Up a Monopoly

Sunday, September 29, 2013

The following has been condensed from an article on Fuel Freedom by Zana Nesheiwat:

Before 1984, only AT&T could sell long-distance telephone service, making a long-distance call cost $3.00 a minute. That monopoly and unfair pricing ended when a federal judge required AT&T to grant access to any carrier that wanted to sell long-distance services. Within three years, the price of a long-distance call decreased from $3.00 a minute to 30 cents a minute. Today it’s 3 cents a minute, thanks to competition and an open market.

Without the breakup of that monopoly, which brought forth industry competition and consumer choice, we wouldn’t be enjoying rapid advancements in the communication industry and the ability to watch, listen, play, tweet and stream from one device.

Economics 101: A monopoly has the power to set the price on a commodity. Although there is more than one oil company (Shell, Exxon, BP, etc.), the only fuel they sell to consumers is petroleum. The lack of fuel competition allows “big oil” to set the price. The wide-scale adoption of abundant, domestic fuel supplies (natural gas, methanol, ethanol and electricity) will boost competition and innovation, resulting in a wider fuel selection for consumers and lower prices at the pump. This is not to mention protection against resource and price volatility and improved air quality.

Beneficiaries of an oil-addicted population and economy, or, as many call it, an oil monopoly, will do everything in their power to maintain a situation where they have sole custody over the transportation fuel market. Recent actions from the American Petroleum Institute (API) demonstrate this. Group Downstream director, Bob Greco, announced that API is “strongly considering” asking the U.S. Supreme Court to hear a case regarding the sale of a high-ethanol fuel blend. Soon after, a press conference ignited news headlines with something along the lines of, “Ethanol destroys cars.” The claims that warn of the dangers of ethanol are based on a research study funded by — you guessed it — the API and automakers.

Clearly, API is threatened by the “competition” and has good reason to be! The competition – natural gas, methanol and, in this case, ethanol, or any combination of alternative fuels, could cause the oil industry to lose profits, market shares and eventually, their dominant control over the fuel market.

The breakup of AT&T brought forth a new era of technology — multi-functioning phones and affordable long-distance phone calls. Breaking the oil monopoly would give us far more than that — relief at the pump and a thriving future for years to come.

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